Why should you care about the customer life cycle?

Written by Buljan & Partners Consulting

foto ciclo vida

Written by Buljan & Partners Consulting

The Customer Lifetime Value is the value that a company gives to the
relationship with each individual customer. Because it is difficult to
predict the length and depth of these relationships, an estimate (the CLV)
is performed periodically help assess this aspect of client relations.

Measuring the benefit each client brings to a company is a challenge for any business. The CLV is the value of a customer over the course of their relationship with the company. What makes this data so essential? It serves as a health check for any company or organization with the intent to be sustainable.

There are many ways of measuring CLV, and although these models can
help business managers in their final evaluation, the CLV actually depends
on figures related to the organization itself rather than an extensive
analysis of the whole sector.

An article in Forbes magazine entitled The Dangerous Seduction of the
Lifetime Value Formula posits that this formula is often used to
compare the costs of acquiring a customer–often referred to as the
purchase price per subscriber–with the positive cash flows that will
come from that customer over time.

Many professionals argue that this analysis is especially justified when
“pressing the accelerator on marketing investment”. The article refers to
measuring factors such as:

  •      Average revenue per user.
  •      Lifetime cost of a user as a weighted average, with annual variables.
  •      Cost of investment in marketing, on average.
  •     Annual user support costs
  •      Customer acquisition costs

When it comes to the CLV it is vital for businesses to measure the degree
of influence of a particular customer segment, since, increasingly, a
greater number of brands need to connect with their customers if they hope
to improve their CLV and attract new consumers.

Many readers may wonder: How can one increase the CLV? A loyalty
program can be very effective in achieving these results. If a customer
visits the website of a brand, regular data collection and analysis for
marketing may provide customers rewards in the form of a return on their

Understanding when to perform actions of up-selling and cross-selling to
existing customers can become a difficult task for any company wishing
to expand their customer base. By monitoring the purchasing history of a
customer, brands can determine when or at what point the consumer will
spend more money according to the time of year and thus be able to
offer attractive deals.

By the same token, the Forbes article warns that the LTV ratio “does not
create a sustainable competitive advantage”, but affirms that this formula
is a measurement tool used to assess the effectiveness of marketing
activities and profitability in line with investment.

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